While some believe the United States may have more trouble getting the rest of the world to go along with a new round of potential sanctions against Iran this time around than several years ago, Russia and Saudi Arabia seemed poised to step in and fill any supply shortfall.
I’ve written about that a few times in recent weeks, but this is one of the more important GEOPOL issues facing crude right now, and, say it with me, if it matters to crude, it matters to propane.
Per a Bloomberg article, Saudi Arabia and Russia are seeking support for increasing OPEC production levels, in the face of Venezuela’s steep production decline and a potential sanctions-induced decline in Iranian production.
While Russia is not an OPEC member, it has been dancing with the Saudi’s on the current production freeze that has been in place since 2016 and will likely keep dancing.
Iran and Venezuela are urging other OPEC members to not go along with lifting the group’s output.
Despite that, it appears the Saudi’s have already begun pumping more oil ahead of the June 22nd meeting.
All of this could lead to some story times at the June 22nd OPEC meeting in Vienna. From the linked article:
This means OPEC’s June 22 meeting is likely to be stormy. Both Venezuela and Iran have written to the group urging unity against external sanctions, citing Article 2 of its statute, something I identified last week as potentially driving negotiations. Their move is unlikely to sway Saudi Arabia, which is facing growing U.S. pressure for a million-barrel-a-day increase in supply, or Russia, where the oil industry is urging restraint to be eased. If anything gets agreed at all it may simply be to maintain the current deal on paper while committing to ensure adequate supply to the market – that would be vague enough to cover just about any eventuality without directly addressing any of them.
Then there is this, from the same item:
How much extra will the “Haves” need to produce just to keep things steady? Russia, Saudi Arabia and the rest of the Arabian Peninsula would need to boost their output by 875,000 barrels a day over the next six months just to offset expected declines from Iran and Venezuela and prevent the anticipated second-half (of 2018) shortfall from getting any bigger.
Regardless of what takes place at this meeting, the second half of 2018 is set up for some potential volatility on the crude front, depending on what happens with Iran sanctions. Venezuela’s output is expected to drop off another 300,000/bpd later this year, too. Very interesting times ahead, and frankly, this is THE bullish factor on our horizon right now for propane pricing. If the Saudi’s and Russia can handle the extra production, which they are capable of handling, and if they begin pumping more, the bears may have their day in crude in the second half of 2018, which could further accelerate a drop in propane prices, which is what Iraq’s oil minister is concerned about:
Iraq's oil min.:
🔵 We shouldn't exaggerate the need to pump more crude ⇨ market
🔵 Could lead to significant ⇩ in oil prices – unacceptable to Iraq
🔵 Iraq refuses to accept unilateral decisions by some producers without consulting other members#ootthttps://t.co/niEog7imLP
— Rowena Caine | روينا كين (@RowenaCaine) June 11, 2018
Then add in this nugget; hedge funds continue to cut their long positions on crude oil, as net-bullish positions have dropped 9 percent in three weeks, the longest such rout since 2013. Total net long positions for WTI are at their lowest levels in nearly a year.
This, from the linked Bloomberg article:
Hedge funds reduced their WTI net-long position — the difference between bets on a price increase and wagers on a drop — by 3.3 percent to 313,450 futures and options during the week ended June 5, the lowest level since October 2017
BIG WEEK FOR GLOBAL ECONOMY: In case you missed it, some are calling this upcoming week the ‘most important of the year‘ for the global economy.
President Trump is meeting with North Korean leader Kim Jung Un in Singapore on Tuesday, the same day the monthly inflation report is released in the United States. On Tuesday and Wednesday, Brexit legislation returns to the House of Commons where it will be discussed, tweaked and sent back to Parliament.
The Federal Reserve is set to hike interest rates for a second time this year, on Wednesday. Russian President Vladimir Putin is meeting with Saudi Crown Prince Mohammed bin Salman on Thursday before the two nations square off in the World Cup…this meeting comes one week before the OPEC meeting in Vienna.
This could be one wild week…